Avoid the yo-yo: Never sign a blank contract when seeking car financing
BY STEPHANIE ZIMMERMANN firstname.lastname@example.org July 6, 2012 10:22PM
THE FIXER HAS SAVED YOU
Updated: August 9, 2012 9:34AM
Dear Fixer: Your recent column about “yo-yo” car sales caused me to think of the last two auto purchases I made.
Both cars were new. I have excellent credit. I signed installment contracts at both dealerships and both “reputable” dealerships wanted me to sign an additional contract with different or nonexistent credit terms. The first dealership wanted me to sign a blank contract. The second one wanted me to sign a contract showing that I would pay cash.
When I questioned the first, I was told that this was just their routine and that the same figures would be entered later.
When I questioned the second, I was told they had to have this backup contract in case my credit wasn’t approved.
Dear Diana: Just to remind our other readers — a “yo-yo” car sale is when a dealer sends a customer home with a car and a promise that they’ll get financing. If the financing falls through, the dealer pressures the buyer into returning the car and making another purchase with much less favorable loan terms.
All the consumer experts we’ve talked to say you should never sign a blank contract or one that doesn’t specify the oral promises of the person who handled the sale.
We showed your letter to Ira Rheingold, executive director of the National Association of Consumer Advocates. Here’s his take:
“There is no legitimate reason for the dealer to have you sign a second contract.
“In the first instance, although I can imagine a number of other unethical and unlawful reasons, I would guess that their unethical reason was to save themselves the trouble of yo-yo-ing the consumer if it turned out they couldn’t sell the initial contract for the price they wanted. I strongly believe that the initial contract the consumer signs is a valid contract — not a credit application.
“Yo-yos happen when the dealer tries to sell the contract to a finance company and the finance company isn’t willing to buy it for the price the dealer wants. Despite having a valid contract, the dealer tells the consumer that there is no contract ‘because the credit wasn’t approved’ [although technically it was approved by the dealer].
“As for signing a second ‘cash’ contract, I’m not exactly sure what that’s all about, but it certainly is nothing good.”
A consumer’s tale of woe
Fixer reader Thomas ran into a similar problem when he and his 25-year-old son tried to buy a used car. They found a car for $4,800 and the dealer said the son was approved with a down payment of $500.
Then their “misery” began, Thomas wrote to The Fixer.
First, the dealer slipped in an extended warranty and roadside service plan, which added $50 to his son’s monthly payment. Luckily, Thomas caught the add-ons and got them removed before his son signed any papers.
His son drove the car home, and everything was hunky-dory until two weeks later, when the finance department called, wanting more documents. A few days later, the family got another call, saying Thomas needed to co-sign or the loan wouldn’t be approved.
Thomas agreed — “against my better judgment.” The car dealership then made 37 inquiries on Thomas’ credit file and 33 on his son’s in a failed attempt to get financing for the car.
“My credit score has gone down by 135 points,” Thomas wrote.
He’s trying to rectify this but said it has been a huge hassle.
For anyone else in the market for a car, save yourself some trouble by first checking with your credit union or local community bank to see whether you qualify for a loan. That will put you on solid ground when working with the dealer.
And read the contract very carefully to eliminate costly line-items that you don’t want or need.
Getting the runaround over a consumer problem? Tell it to The Fixer at suntimes.com/fixer , where you’ll find a simple form to fill out.